DOJ joins whistle-blower lawsuit against Sutter Health

The U.S. Department of Justice has intervened in a lawsuit alleging Sutter Health submitted unsupported diagnosis codes to inflate its Medicare Advantage payments.

A whistle-blower accused Sacramento, Calif.-based Sutter and its affiliated medical group, the Palo Alto Medical Foundation, of knowingly submitting unsupported diagnosis codes for certain patients that inflated their risk scores, resulting in higher payments to the providers under the Medicare Advantage program.

"Federal healthcare programs rely on the accuracy of information submitted by healthcare providers to ensure that patients are afforded the appropriate level of care and that managed care plans receive appropriate compensation," Assistant Attorney General Jody Hunt of the DOJ's Civil Division, said in a statement. "Today's action sends a clear message that we will seek to hold healthcare providers responsible if they fail to ensure that the information they submit is truthful."

The CMS pays capitated amounts to providers for beneficiaries in Medicare Advantage plans, with larger payments for patients with higher risk scores, indicating more severe diagnoses. The plans are owned and operated by private Medicare Advantage organizations. Sutter, a not-for-profit health system, contracted with certain Medicare Advantage organizations to provide services to members in exchange for receiving a share of the payments.

The lawsuit alleges that even once the Sutter entities became aware of the unsupported diagnosis codes, they failed to fix the problem.

Sutter spokeswoman Amy Thoma Tan wrote in an email that the health system and its medical group take the issues raised in the complaint seriously.

"The lawsuit involves an area of law that is currently unsettled and the subject of ongoing litigation in multiple jurisdictions," she said. "We intend to vigorously defend ourselves against the allegations in the complaint."

The proportion of Medicare beneficiaries enrolled in Medicare Advantage has increased steadily over the past decade, with 19 million enrolled in 2017, according to the DOJ.

"This intervention illustrates our commitment to protecting the integrity of the Medicare Advantage program," U.S. Attorney Alex Tse for the Northern District of California, said in a statement. "We will continue to guard government health programs from companies that improperly maximize their bottom line at taxpayer expense."

The whistle-blower, Kathleen Ormsby, is a former Palo Alto Medical Foundation employee.

The case was investigated by the Civil Division's Commercial Litigation Branch, the U.S. attorney's office for the Northern District of California and HHS' Office of Inspector General.

Sutter paid $46 million in 2013 to settle another whistle-blower lawsuit that accused the health system of fraudulently manipulating anesthesia billing codes to inflate the bills that went to patients and insurers.